Part I of our look at the negotiation of Michigan gaming compacts is here.

In any negotiation, it is critically important to understand the capabilities and the constraints of every party at the negotiating table. The negotiation of new gaming compacts between the “1993 Tribes” and the State of Michigan will be constrained by a number of factors, including: decisions made in the past 20 years, economics, and modern politics.

In this post, we are going to look at some of the factors constraining the State’s bargaining power in compact negotiations. Note that this review is based on the assumption that the State of Michigan’s objective is to execute a new compact that imposes significant revenue sharing obligations on the 1993 Tribes, and subjects them to greater regulation by the Michigan Gaming Control Board; it is also based on the assumption that the 1993 Tribes’ collective objective is to maintain something approximating the status quo.

Here are some of the big limitations on the State’s bargaining power:

Uncertainty Over the Term of the 1993 Compacts

As I mentioned in my post in Part I, Section 12(a) of the original 1993 Compacts stated that the compacts would be binding for a term of 20 years. Under one interpretation of Section 12, that would mean that the 1993 Compacts expire this year.

But, Section 12(b) of the 1993 Compacts creates some ambiguity as to whether they automatically expire this year:

At least one year prior to the expiration of twenty (20) years after the Compact becomes effective, and thereafter at least one year prior to the expiration of each subsequent five (5) year period, either party may serve written notice on the other of its right to renegotiate this Compact.

To put it more clearly: The use of the phrase “each subsequent five (5) year period” in Section 12(b) suggests that the 1993 Compacts automatically “rolls over” for one or more five year periods if no new compact is reached.

The State of Michigan may assert that the language in Section 12(a) is clear – that the Compact expires in 2013, after 20 years. But, this argument is weakened by the Consent Judgment that the State of Michigan reached with the Keweenaw Bay Indian Community in 2001.

If you recall from Part I, in 2001, the Keweenaw Bay Indian Community agreed to settle its lawsuit with the State of Michigan over gaming on an off-reservation parcel of land near Marquette, Michigan. That agreement was neither a new gaming compact, nor a gaming compact amendment (if it were, the Tribe would have been required to submit it to the Department of the Interior for approval).

As part of that agreement, the Tribe agreed to renew its obligation to pay 8% of its net gaming revenues to the State of Michigan, in exchange for a modified version of statewide exclusivity. The State of Michigan also agreed to the following provision:

Prior to November 30, 2022, the State will forbear from exercising its unilateral right to renegotiate or terminate the Compact pursuant to Section 12(C) of the Compact.

This concession by the State of Michigan strongly suggests that the 1993 Compacts do not automatically expire in 2013. If they did, the Keweenaw Bay Indian Community’s Class III gaming operations could not continue until 2022 without a new gaming compact. The 2001 Consent Judgment in the Keweenaw Bay Indian Community’s lawsuit was also entered in the U.S. District Court for the Western District of Michigan, which has retained jurisdiction over the 1993 Compacts.

The State of Michigan may argue that it has asserted its “right to renegotiate” with the 1993 Tribes, which somehow overrides Section 12(B) of the 1993 Compacts (with the 5-year rollover provisions). But doing so will give rise to another constraint…

Sovereign Immunity Waiver?

Section 12(C) of the 1993 Compacts states:

In the event that either party gives written notice to the other of its right to renegotiate this Compact pursuant to subsection (B), the Tribe may, pursuant to the procedures of IGRA, request the State to enter into negotiations for a successor compact governing the conduct of Class III gaming activities. If the parties are unable to conclude a successor compact, this Compact shall remain in full force and effect pending exhaustion of the administrative and judicial remedies set forth in IGRA and/or any other applicable federal law.

As many of you know, Congress included remedial language in IGRA that attempted to allow tribes to file lawsuits against states for failure to negotiate in good faith. IGRA also included language that allowed for a court-appointed mediator to impose a gaming compact upon a state and a tribe in such a dispute.

The Supreme Court effectively negated these provisions in the Seminole case. As a result of Seminole, these remedial provisions of IGRA are only applicable where a state voluntarily waives its own sovereign immunity against a tribe for gaming compacts.

The language in Section 12(C) of the 1993 Compacts references IGRA’s remedial provisions, and strongly suggests that the State of Michigan has waived its sovereign immunity vis-à-vis the 1993 Tribes to resolve any impasse over negotiating a new gaming compact.

As a general rule, courts do not infer waivers of sovereign immunity – a state’s waiver of sovereign immunity must be clearly stated (usually through legislation or a provision in a state’s constitution).

However, there is an argument to be made that the Legislature’s ratification of the 1993 Compacts through a resolution waived the State’s sovereign immunity in this case.

By all accounts, the State of Michigan is seeking new compacts with the 1993 Tribes that reinstates their obligation to share gaming revenues with the State.

As we covered in Part I, the 1993 Compacts did not include any revenue sharing provisions – the Tribes’ revenue sharing obligations were imposed through a 1993 Consent Judgment entered in federal court. Under the 1993 Consent Judgment, the 1993 Tribes’ revenue sharing obligations were extinguished when the State of Michigan negotiated other tribal gaming compacts and allowed commercial gaming in the City of Detroit. The 1993 Consent Judgment also requires all of the tribes (and the State) to agree to any changes to that agreement.

As of today, 6 of the 7 1993 Tribes are not sharing gaming revenues with the State.

It is quite possible that the U.S. District Court determines that the 1993 Consent Judgment is still in effect. If that is the case, the State can only succeed in getting new revenue sharing provisions if it gets all seven of the 1993 Tribes to agree on changing the 1993 Consent Judgment. The odds are that, if you are reading this, you have some familiarity with Indian law and Indian tribes. You probably know how difficult it would be to get seven tribes to agree to that.

Rincon, and the Department of the Interior

Assuming for the moment that the State is able to get the unanimous support of the 1993 Tribes to agree to revenue sharing provisions, it still faces big obstacles in getting those revenue sharing provisions to take effect.

All Class III gaming compacts must be approved by the Department of the Interior, which reviews them to ensure that they comply with IGRA and other federal law.

The Indian Gaming Regulatory Act prohibits states from imposing a “tax, fee, charge, or other assessment” on Indian gaming. This language shows that Congress was very emphatic that states have no authority to get tribal gaming revenues.

The only way that the State can get tribal gaming revenues is if they give something valuable to the 1993 Tribes in return. As a general matter, the only thing that states really have to offer tribes is the right to exclusive gaming.

The 1993 Tribes once enjoyed the exclusive right to conduct gaming throughout the entire State of Michigan. Today, there are 21 tribal gaming facilities across the State, and three commercial gaming facilities in the City of Detroit. The State of Michigan can’t offer statewide exclusivity anymore.

In more recent compacts, the State of Michigan has gained tribal revenue sharing payments in exchange for “an economic incentive…to discourage the State from authorizing adverse competition or other economic policies or activities that are harmful” to tribal gaming. These more recent compact provisions have winnowed-down tribal gaming exclusivity from a statewide right to a regional privilege.

In recent years, the Department of the Interior has scrutinized and disapproved gaming compacts with similar provisions because it saw them for what they really were – an illusory “concession” by the State in exchange for a tax on tribal gaming facilities. Examples are here, here, and here. Federal courts have endorsed DOI’s standard in the Rincon decision.

The State of Michigan has very little to offer the 1993 Tribes in exchange for revenue sharing. It would be nearly impossible to claim that some sort of regional exclusivity would justify tribal payments matching (or exceeding) the payments required in the 1993 Consent Judgment – which were made in exchange for statewide exclusivity. More on that in Part IV.

Given its recent decisions, the Department of the Interior would very likely disapprove any such agreements for the 1993 Tribes.

Jobs! Jobs! Jobs!

There are 21 tribally-owned gaming facilities currently operating within the State of Michigan. 15 of those gaming facilities are operating under the 1993 Compacts – almost all of which are located in rural areas. Those facilities employ thousands of Michigan citizens (most of whom are non-Indians), and are likely responsible for a comparable number of indirect jobs. I don’t have precise data on this point, but you can be sure that the 1993 Tribes have this information.

If the State were to play hardball, and attempt to close these 15 gaming facilities for operating without a compact, they would be jeopardizing thousands of jobs in rural communities at a time when the statewide unemployment rate is 9% – nearly two full percentage points above the national average. This is a much different dynamic than negotiating a compact for a new gaming facility, as there is a big difference between “potential” jobs and “actual” jobs. The State of Michigan is going to have to maintain a delicate balance between tough negotiating, and preserving jobs in this economy. Taking too tough of a stance will impact…

Politics

Governor Rick Snyder has styled himself as “One Tough Nerd,” whose singular focus is on creating jobs in a depressed state. He is also running for reelection in 2014; and, the prospect of putting thousands of people out of work will put a dent in his image right before his reelection campaign.

Another overlooked dynamic is the tenuous relationship between Governor Snyder and the Republican Legislature. The 15 tribal gaming facilities operating under the 1993 Compacts are located across 8 districts represented in the Michigan House of Representatives, of which 6 are currently represented by Republicans. Those gaming facilities are also located in 5 State Senate districts, all of which are represented by Republicans. 11 of these 13 members of the Michigan Legislature are likely to be seeking reelection next year, and will surely want to protect existing jobs in their districts as they gear-up for their own campaigns. It will be interesting to see whether, and how, the 1993 Tribes take advantage of this dynamic.

Keweenaw Bay Indian Community

As I’ve mentioned numerous times, the 1993 Consent Judgment will play heavily into any negotiations because of the revenue sharing provisions contained in that agreement. That agreement was reached between the State of Michigan and seven tribes, and requires the unanimous consent of all parties to be modified.

As I’ve explained, the Keweenaw Bay Indian Community and the State of Michigan entered into a separate agreement in 2001 to resolve litigation over the Tribe’s off-reservation gaming facility near Marquette. That agreement requires the Keweenaw Bay Indian Community to make 8% revenue sharing payments to the State through 2022.

If the 1993 Consent Judgment remains in effect, it can only be modified through the consent of all of the parties. Put another way: the State can only obtain new revenue sharing payments from the 1993 Tribes only if all of those tribes agree to it – including the Keweenaw Bay Indian Community.

Since the Keweenaw Bay Indian Community is already obligated to make revenue sharing payments to the State through 2022, it has almost no incentive to agree to changes to the 1993 Consent Judgment – unless the State agrees to give it such an incentive.

* * *

In our next post, I will discuss some of the constraints facing the 1993 Tribes as they examine their bargaining position.